Tracing the Concept: Investment (Essay Sample)

University Tracing the concept: Investment Name Course Professor date Tracing the concept: Investment Introduction Investment is a mechanism where individuals, institutions and, governments commit their resources in the form of finances, time, and energy mainly in anticipation of future benefits. The paper is going to focus on the theories and concepts that were formulated by Keynes, Schumpeter, and Smith that have lead to the development of the concept of investment from the early times to what it is today and to evaluate the impact that this concept has had on numerous economies . The paper borrows numerous ideas from a scholarly article wrote back in 2008 by Paganelli Maria entitled, “The Adam Smith Problem in Reverse: Self-Interest in The Wealth of Nations and the theory of moral Sentiments,” which concentrates on how nations have been undertaking their investment activities to enable them to earn lots of money that have enabled them to advance in various dimensions. It also focuses on the moral paradigms that have been incorporated by the investors to enable them to advance. The article stipulates the essence of the ideas advanced by Adam Smith who remains an iconic theorist who advised nations on how to carry out their investments activities to facilitate value addition in the changing environments. The article concentrates on Adam Smith though the entire paper shall go a step further to analyze the contributions of other scholars in the advancement of investment protocols. The benefits of investment may include future streams of income or other defined benefits. Individuals and institutions like companies are known to consider investment as a concept that is quite essential in putting them in a position that enables them to earn increased level of incomes in the future than at the moment. Individuals normally invest in numerous businesses and ventures to improve their welfare in the future through the increased earnings that can lead to much financial freedom that is critical for their futures. Keynes, Smith, and Schumpeter are three economists that encourages individuals and nations to invest in numerous business ventures to increase their levels of income. Keynes in his investment theory, urges people to borrow money when the rates of interest are low to invest in various business and consider investing in ventures like stock market when the interests are high to maximize their returns. Smith is an advocate of free trade where governments should remove trade barriers that may hamper foreign trade. He believes that foreign trade is essential in the accumulation of capital, which forms the basis for economic growth. Schumpeter concentrates on the essence of supporting scientific innovations and inventions, which he says that are the main drivers of productivity in the economy that results in increased levels of income. The concept of investment has been in existence for a long period since individuals, organizations, and governments have always been looking for mechanisms of making themselves better as they move into the future. Each of these three parties has been thinking on the best way out to ensure that the future becomes fruitful and prosperous enough to ensure that there are sustainability and profitability. It is this thinking that led to the concept of investment among numerous parties worldwide. Smith Adam Smith’s views on the wealth of nations, as well as other works carried out by him, were and still are essential in the development of the concept of investment, which is believed to be behind the massive economic growths that have been witnessed in some economies while others have come up with mechanisms of facilitating the same. His first contribution to the development of the investment concept was his insistence on a system that was geared towards ensuring natural liberty where each was to be given freedom to pursue his/her economic objectives. He understood the notion that there are those individuals who are quite selfish in the sense that they always struggle to ensure that they prosper without considering the welfare of others. He, however, goes ahead to state that despite the self tendency of some individuals and firms, the prospect of people being granted liberty was essential to the entire society since this would lead to an increase in production that ends up increasing the quality of life of individuals across the economy in question. He is a man who was in total disagreement with the idea of there being restrictions that aimed at limiting or rather curtailing the cross-border trade where products from abroad could be discriminated about of denied access to the local setting. The interpretation here is that there was a need for open economies where products and services from across the borders could find their ways to the local economies where the society could access them at any given point. He argued that when there is an open economy, the urgency with, which capital accumulation is achieved becomes quicker than under the closed economy. When the economy is open to foreign traders and investors, it follows that these foreign traders are free to conduct direct foreign investments where they help in accumulating capital in the local economies. It is evident that for an economy to grow; there is a need for massive investment projects that target diversifying the economy or strategic sectors that can help the economy to become productive enough. When the economies are open, technological transfer is facilitated at an increased rate since the stakeholders’ are free to transact their business with minimum interference from the government authorities. The ideas advanced by Smith regarding free market mechanism and open economy have led to the increase in the levels of investments in the world as a whole. It is evident that there are other established individuals who have supported the views of Smith to great heights thus convincing various governments to open up their economies to facilitate increased investments. Today, majority of the economies have had their economies opened up to facilitate numerous forms of economic investments. Direct foreign investment has been witnessed in the developing countries where the governments have been in support of the activities of the United States, European, and Chinese firms and agencies investment activities in their local activities. The increase in the level of investments has been seen as a mechanism that has led to increased levels of economic growth where majority of the economies have been able to have an increased level of accumulated capital stock that has led to increasing in employment opportunities since there is a need for labour to enhance increased productivity targets of numerous firms. Schumpeter The role played by the Austrian school of economics cannot escape unnoticed since it played a vital role in ensuring that the society gets to understand how to approach investment issues and business in general. One of the most outstanding economists in this school of thought was Joseph Schumpeter who also worked as a political analyst. His works surrounded on issues like business cycles and innovation where he always emphasized and appreciate the role played by entrepreneurs in the society. He is an individual that lauded the manner in, which entrepreneurs helped to create new jobs and increase production levels, which he believed were tremendous to economic growth and prosperity of any economy. On business cycles, he observed that they were essential in explaining the business situations of the economy. He believed that capitalism is prone to long-term cycles since it is largely based on scientific inventions ad innovations. He lauded the role played by scientific innovations in facilitating the expansion that is responsible for increasing economic gains that force entrepreneurs to invest heavily. He urged the governments to always ensure that there are numerous innovations and inventions in the economy to ensure that the businessmen invest to prevent cases of recession that may lead to closures of businesses and hence bankruptcy. He argued that such innovations could lead to destructive results where the current means of production and products are rendered useless thus implying that the firms will start producing at reduced levels thus leading to unemployment in the short-run. Such scenarios are necessary for economic growth since the economy can start a fresh based on new products that result from the modernized innovations. His ideas are quite essential in the sense that many governments and policy makers have come to understand that the economy has to be allowed to go through numerous cycles in certain times for there to be new products that are desired by the society. It stresses on the notion that the business world is quite dynamic and many at times quite unpredictable thus implying that there is always need for policies to be in place to manage such changes. The prospect of having an economy that is supportive of innovations that are based on advancing scientific techniques is quite essential since it helps to increase productivity. As technology and innovations change, there are those individuals and firms that will find it hard to adjust in the short-run thus implying that there shall be structural unemployment where some employees will find their skills unnecessary thus signaling the need for re-training. These innovations motivates firms and individuals to invest more thus leading to a situation where there is enough capital stock to work with that enables the productivity level in the economy to raise a lot. The concepts highlighted by Schumpeter are quite essential since the firms should be aware of the fact that there have to be business cycles, which may end up impacting negatively on their businesses thus the need for them to come up with means of coping with this situation to help t...